At 9am on 12 June 2000, a new internet bank was launched. Cahoot came with all the requisites: a silly name, an unbelievably good deal for customers - no interest on loans for a year for the first 25,000 people - and exciting new technology. Forty-five minutes later it collapsed under the weight of demand, brought down by a computer glitch known as the "curse of Egg". Because it was an internet bank, telephone helpline staff could only suggest trying in half an hour, when it still did not work.

The first day of Cahoot, (www.cahoot.com) set up by Abbey National, (www.abbeynational.co.uk) illustrates well why people like banking online - and why they frequently find it one of the most frustrating experiences a computer screen can offer.

Despite the flaws, customers are flocking to bank on the net. At its own-brand banking service, Abbey added 42,000 internet customers in one week in May alone. It is aiming for 500,000 customers registered to bank online by the end of the year. The gain for Abbey shareholders is clear: transaction processing via the net is a fraction of what it costs over the counter.

And for the customer, there are the advantages of 24-hour banking. These are enormously popular, despite the often clunky nature of websites. Indeed, online banks reported a surprising number of "hits" on their sites on Christmas day, when family is supposed to take priority over money. As people become busier, controlling money from work or outside office hours, when branches are shut, is becoming essential.

"It is the M25 effect," says Ian Harley, chief executive of Abbey. "Transactions take place because they can take place, in the same way as journeys take place because they can take place."

Unfortunately, like the M25, there are often cyber-traffic jams or accidents that block the information superhighway.

For people used to the old ways the internet could come as a shock. Barclays (www.barclays.co.uk), which is leading the race to persuade customers to bank online, said the rise in internet use was partly behind its closure of 171 branches earlier this year.

The internet promises to revolutionise banking, bring benefits to most people. It is also forcing banks to be more innovative, producing a wave of new products - and new variants of old ones.

That at least, is the theory. In practice, online banking is often slow, frustrating and fallible. Sites on the world wide web are badly designed and new technologies, such as on-screen banking via television or mobile telephone, are even worse.

Despite these initial drawbacks, internet banking is here to stay. Not only does it hold out the best deals for many products, but it is also replacing traditional banking. No one suggests every branch is going to disappear (in the US some internet banks have even opened "bricks and mortar" outlets under pressure from customers) but the networks will shrink dramatically.

The good news is that the internet is becoming easier to use, and online banking gets better all the time. Offers through the web are also improving as bankers, keen to close branches, bribe customers to spend more time on their computers. The most recent deal is a hefty 7 per cent interest rate on savings with Nationwide's net-only account, (www.nationwide.co.uk), far better than anything available at its branches.

Rates for online current accounts can be as much as 50 times higher than in branches.

Even with all of these improvements, for many the internet remains as easy to surf on as a whirlpool. Instead of moving seamlessly from bank to bank, comparing prices before switching money to the best deal at the click of a mouse, they find themselves searching websites in vain for interest rates or waiting for slow graphics to download. In the worst case, concerns about whether a strangely named new bank is an offshore fraud or a trustworthy offshoot of an existing financial services conglomerate can stop consumers opening new accounts altogether. Clients do not need to fear Egg (www.egg.com), Cahoot, Intelligent Finance or IF (www.if.com), and Smile (www.smile.co.uk) for example.

This guide is designed to help the would-be banking surfer. What sort of computer do you need? Can you trust your money to the web? Are the well-publicised service problems experienced by hundreds of thousands of Egg customers typical of the internet? Do the low prices make up for the lack of branches? What on earth is Wap? Answers to all these questions, together with details of the online banks and their offerings, appear in the following chapters.

Contact James Mackintosh on james.mackintosh@ft.com